Legal Aid of Nebraska challenges law that lets investors take property over unpaid taxes

LINCOLN — After neglecting to pay a $588 tax bill, a Scottsbluff couple now stand to lose their $60,000 home — because of a state law that allows others to obtain properties by paying off someone else’s tax debts.

Now Legal Aid of Nebraska is challenging the constitutionality of the tax lien law, which has already attracted the attention of the Nebraska Legislature.

The homeowners, Kevin and Terry Fair, didn’t realize they were at risk of losing their home until last year, three years after an Omaha-based company that looks for delinquent properties paid the initial tax debt of $588.21.

By then, their tax debt and associated fees had escalated to nearly $6,000, which was financially out of reach for an elderly couple living on a single income and dealing with the wife’s multiple sclerosis, according to their attorney, Mike Meister of Scottsbluff.

“People need to pay their taxes, but we believe the process allowing the county to take the property of one person and transfer it to someone else that stands to make a substantial profit is unjust,” Meister said. “We believe it’s both wrong and unconstitutional to let the county and investor seize over $50,000 in equity — 10 times what is now owed in taxes — and kick the Fairs out in the process.”

A lawyer with Omaha-based Continental Resources, meanwhile, said her firm followed all current laws regarding notice to the property owners and had paid the taxes on the Fairs’ home for four years.

“During this time period, these homeowners have never reached out to us to attempt to address this matter,” said company attorney Deana Walocha.

Although one State Supreme Court judge described the case as “a windfall that borders on the obscene,” state law allows companies and individuals to pay the delinquent taxes on a property, and then, after a three-year wait, take steps to acquire the property if the owner fails to pay the tax bill plus accrued interest and fees.

That’s what happened in the case of Kevin and Terry Fair. Continental Resources, a subsidiary of US Assets, paid the couple’s delinquent tax bill in March 2015.

Last spring, the Fairs were notified of that transaction, and were told that they needed to pay taxes, interest and legal fees that eventually added up to $5,965.74, or face losing a home they’d lived in for 23 years. They owned the home outright.

Meister said the couple might have been distracted in 2015 due to the onset of the wife’s illness, but by 2018, they could not afford the much larger bill. By then, Kevin Fair had taken early retirement to care for his wife, who had lost her job because of her illness. The attorney said that the Fairs tried, but failed, to obtain a bank loan to pay off the tax lien.

In August, Continental Resources obtained a “quiet title” to the Fairs’ home, which Legal Aid is now contesting in court as unconstitutional.

“The Fairs simply want to keep their home, work hard to catch up with their taxes, and keep what little wealth they have in their property,” Meister said.

The Legal Aid attorneys have raised several arguments in what may be the first constitutional challenge of the tax deed law. Among them is that the process is an “illegal taking” by government for a private entity, that the Fairs were not being compensated for the taking of their home, and that the process lacks proper notice, or due process, to those affected.

Legal Aid is also arguing that the law discriminates against the elderly, infirm and handicapped, who are often “most impacted” by the tax deed process, said Jennifer Gaughan, Legal Aid’s Omaha-based legal director and the Fairs’ co-counsel.

The issue has attracted the attention of the Nebraska Legislature. On Friday, State Sen. Matt Williams of Gothenburg introduced Legislative Bill 463 along with nine co-sponsors, including the lawmaker who represents the Scottsbluff area, Sen. John Stinner.

The bill provides for “enhanced notification,” Williams said, by requiring that the property owner be personally served notice of a pending sale by a sheriff’s deputy, and if that fails, to be served by certified mail. The bill also requires notice to an occupant of the property or, in the case of farmland, a renter of the property.

Williams said there is some “culpability” on the part of property owners who don’t pay their taxes, but he believes that LB 463 would provide enough notice that someone would react to the threat of losing the property.

Meister said he doesn’t think the bill goes far enough. The enhanced notification, he said, would be better if it happened when the initial tax debt was paid off by a third party, not three years later when the loss of someone’s property is imminent and the delinquent tax bill has escalated.

A date for a public hearing on the bill has not yet been set. Meister said he expected the Scottsbluff tax deed case to be appealed to the State Supreme Court, regardless of the outcome at the district court level.